Working capital is characterized by a short service life and a price that immediately relates to production costs (purchase of materials, raw materials, products intended for sale, components, semi-finished products). As a definition, this concept means the value expression of various objects of labor, turning around in the production process only once. At the same time, they transfer their entire price to the manufactured products, that is, they create their cost.
Working capital - this is the same working capital that the organization consumes to carry out its own production activities. They differ in one feature - they are completely consumed by the enterprise in one period of the normal production cycle. All working capital consists of:
- inventories (raw materials, semi-finished products, materials, electricity, fuel, spare parts, components; costs of unfinished production; expenses of the future period; finished goods).
- accounts receivable, the period of which is more than 12 months;
- funds in accounts and at the box office;
- short-term financial investments;
- other current assets.
There is a certain classification of working capital:
1. Revolving industrial funds, consisting of:
- production supplies (basic materials and raw materials, fuel, purchased semi-finished products, low-value and quickly wearing items, auxiliary substances);
- deferred expenses;
- funds that are in production (semi-finished products of their own production).
2. Circulation funds, consisting of:
- unsold products in stock;
- shipped but unpaid products;
- goods intended for resale.
- cash on accounts, at the cash desk and securities.
The main goal of management control is to determine the most optimal sizes and a clear structure of these funds. The sources of their financing should also be analyzed. Working capital is divided into:
- permanent - part of current assets, the need for which remains virtually unchanged throughout the production cycle; this minimum size of current assets is an indispensable condition for the implementation of normal production activities.
- variable capital - an additional current asset necessary for various unforeseen operations.
Net working capital is a very important factor that is used in the implementation of a financial analysis of a company. It characterizes the value of the capital, which is free from all short-term obligations. It has another name - working capital. It is necessary for the stable maintenance of the financial stability of the organization. If current assets exceed the amount of short - term liabilities, this means that the company can easily repay these obligations and has reserves to expand its activities.
Own working capital indicates how much of the current assets the company finances with its own funds. Its presence and size is one of the most important characteristics of the financial stability of an organization. The amount of equity capital is set as follows: the sum of current liabilities is deducted from the amount of current assets. The lack of this capital leads to a significant decrease in the constant and an increase in the variable part of the assets. This state of affairs indicates an increase in the financial dependence of the organization and its precarious situation. The state of this indicator is reflected in the liquidity ratio, which characterizes the ratio of the value of current assets to attracted capital.